Could we have reached our lows for the year on the major North American exchanges?

Many “bears” (investors that believe the market will go lower) believe the markets will continue to fall over the second half of 2010 citing slower growth in the U.S. and China and European debt issues. However the “bulls” (investors positive on the markets) believe things will move higher from here with interest rates still at all-time low levels, the United States continuing to stimulate their economy and corporations having an excessive amount of cash on their balance sheets.

Who will prove to be correct over the next six months: the Bulls or the Bears?

We are headed into earnings season, and many money managers believe that once again, most companies will pleasantly surprise. The hope for investors is that these upsides result in higher stock prices.

Both corporate America and companies here in Canada have continued to streamline their businesses cutting away unnecessary expenses to become leaner and better equipped to handle today’s more volatile and unpredictable market environment.

Many analysts have commented on how much cash is on company balance sheets due to the uncertainty in government reform and regulation and the volatility in the market. Many companies in the U.S. feel a lot more comfortable hoarding cash at this time rather than putting it to use in what they feel is an uncertain environment.

One sector that is moving carefully, both here in Canada and in the United States, is the banking sector. Financial reform out of the U.S. still not complete and G20 nations still have not agreed upon how much in reserves banks will require as a cushion. Until these two things happen, the banking sector cannot truly move forward. So, like many other corporations, they are sitting on their cash reserves for now.

I do believe that things will improve over the second half of 2010. Though I can't say for certain we've seen the low point for this year, we will finish the year higher than where the market trades currently. With Europe apparently stabilized, fears of a China slowdown put to rest, and a U.S. stock market in oversold territory based on current and future earnings, this market could easily rebound over the coming six months.

Jean-Claude Trichet, head of the European Central Bank, also boosted markets recently when he said the Euro region is faring much better than most would have predicted. These types of positive comments are important to take a fragile stock market higher.

With quarterly earnings on the horizon, investors and advisors looking to grow their portfolios should do the research to find the bargains. Many companies set to report great earnings are trading at historically low multiples. Some companies are trading at five to ten times their earnings. There are also some great companies paying great dividends. Investors can earn a 4 or 5 per cent dividend while they wait for growth. These are the companies you want to own heading into the second half of the year. This is the time to get aggressive and buy, not run and hide!

If you have any questions regarding the above article or are looking for an Investment Advisor to help you with your portfolio, please send me an email at I will be glad to speak with you!

Allan Small is an Investment Advisor with Dundee Securities Corporation, a DundeeWealth Inc. Company. This is not an official publication of Dundee Securities and the author is not a Dundee Securities analyst. The views expressed are those of the author alone, and are not necessarily those of Dundee Securities.

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